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Gartner Says SaaS Revenue Within the Enterprise Application Software Market to Total $9.2 Billion in 2010

Worldwide software as a service (SaaS) revenue within the enterprise application software market is forecast to reach $9.2 billion in 2010, up 15.7 percent from 2009 revenue of $7.9 billion, according to Gartner, Inc. The market is projected for stronger growth in 2011 with worldwide SaaS revenue totaling $10.7 billion, a 16.2 percent increase from 2010 revenue.

Gartner defines SaaS as software that is owned, delivered and managed remotely by one or more providers. The provider delivers an application based on a single set of common code and data definitions, which is consumed in a one-to-many model by all contracted customers anytime on a pay-for-use basis, or as a subscription based on use metrics.

"Initial concerns about security, response time and service availability have diminished for many organizations as SaaS business and computing models have matured and adoption has become more widespread," said Sharon Mertz, research director at Gartner. "Usage and vendors' on-demand ecosystems continue to evolve to provide additional business and technology services, more-vertical-specific functionality, and stronger communities of partners and buyers."

The composition of the worldwide SaaS landscape is evolving as vendors continue to extend regionally, increase penetration within existing accounts and "greenfield" opportunities, and expand their solution offerings, either organically or through acquisition. During the past 12 months to 18 months, Gartner has observed shifts in how SaaS is sold, consumed and perceived by vendors and buyers.

"There is increasing involvement from executives in purchasing decisions, as well as greater participation from IT in the purchase process due to larger deals, the expanding footprint of SaaS in the enterprise, and a higher requirement for downstream integration as SaaS becomes incorporated in the enterprise business process," Ms. Mertz said.

Additional shifts in SaaS have included the following:

An increasing number of enterprises are using a variety of SaaS applications from multiple vendors that were procured and deployed without participation from IT, creating management issues and challenges.

SaaS deployments are becoming larger, with deals more frequently appearing in the range of thousands to tens of thousands of users within large enterprises.

Social media and social software are becoming increasingly integrated with SaaS solutions, as social platforms such as Facebook and Twitter are leveraging customer service, sales and marketing initiatives. In contrast, recent research indicates that social software has the lowest adoption rate by buyers of SaaS solutions.

Content, communications and collaboration (CCC) continues to lead the enterprise SaaS market with worldwide CCC revenue on pace to reach $2.9 billion in 2010, followed by customer relationship management (CRM) revenue of $2.6 billion.

For CCC technologies, SaaS use varies across the market segments. For certain markets, such as ECM and search, SaaS is barely used at all, while for Web conferencing, it is the predominant form of software access.

Adoption of SaaS in the CRM market also varies within each subsegment. The majority of SaaS total software revenue within the sales subsegment is represented by sales force automation, where benefits of rapid time to deployment and ease of configuration for sales administrators make it an attractive alternative to on-premises solutions. Interest has been growing for e-commerce SaaS solutions in business-to-consumer environments, although some buyers express concerns about a potential lack of differentiation, impact on the total IT portfolio, integration challenges with on-premises applications, and uncertainty over data ownership (client data versus aggregated data).

During 2009 and 2010, the significant industry buzz surrounding SaaS and other off-premises models has shifted to cloud computing — a broad concept, of which SaaS is only one variation, representing the application layer of the overall cloud architectural stack. Gartner estimates that 75 percent of the current SaaS delivery revenue could be considered as a cloud service, and that could exceed 90 percent by 2014 as the SaaS model matures and converges with cloud services models.

Gartner analysts said it is important to also differentiate SaaS from hosting or application management or application outsourcing.

"Because SaaS and cloud are hot concepts in the market, many suppliers are rebranding their hosting or application management or application outsourcing capabilities as SaaS or are claiming their solutions are available 'in the cloud.' Much relabeling of more-traditional application outsourcing approaches is occurring," Ms. Mertz said. "Suppliers run the risk of confusing and antagonizing buyers if they persist in this approach. Enterprises run the risk of getting nasty shocks when the thing they thought they were buying turns out to be something altogether different. Hosting and application management are not synonymous with SaaS, nor do they necessarily comply with the definition of cloud computing."

Additional information is available in the Gartner report "Forecast Analysis: Software as a Service, Worldwide, 2009-2014, Update". The report is available on Gartner's website athttp://www.gartner.com/resId=1468024.

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Gartner, Inc. (NYSE: IT) is the world's leading information technology research and advisory company. The company delivers the technology-related insight necessary for its clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises and professional services firms, to technology investors, Gartner is the valuable partner to clients in approximately 10,000 distinct enterprises worldwide. Through the resources of Gartner Research, Gartner Executive Programs, Gartner Consulting and Gartner Events, Gartner works with every client to research, analyze and interpret the business of IT within the context of their individual role. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, USA, and has 8,300 associates, including more than 1,800 research analysts and consultants, and clients in more than 90 countries. For more information, visit www.gartner.com.

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